2.2 Query
Whether a committee can be validly constituted by the Board of Directors for the approval of modified accounts in view of the Provisions of the companies Act, 1956.
1. ‘X’ is a joint enterprise of the Government of India and VOEST Austria. Its Board consists of members of Indian and Austrian origin. The company holds a board meeting once in every quarter.
2.The annual accounts of the company are placed before the full Board for approval before they are submitted for audit. The accounts are subsequently modified as a result of the audit. Since, the company finds it difficult to arrange the board meetings to frequently, the Board has constituted a committee of its members for approving the modified accounts on behalf of the Board. The Articles of Association of the company have provided that “the directors may delegate any of their powers to committees constituting of such member or members of their body as they think fit.”
3.The querist has argued that though Section 215 of the Companies Act, 1956 requires the approval of the accounts by the Board of Directors only, but the list of matters to be transacted at a board meeting only as given in Sections 292 of the Act does not contain the approval of accounts, thereby indicating that the accounts can be adopted by even a committee of the Board. The querist has also cited the following two conflicting views for the consideration of the Expert Advisory Committee:
(i) “The Ministry of Law, Justice and Company Affairs, Govt. of India as per their letter No. 8/22/(215)/76-CL-V dated 27th October 1976 have expressed the view that in “the absence of any specific provision in Section 215, like the one in the first provision to section 292(1), the power of the Board cannot be delegated to a Committee of Directors or some of the Directors. In case it becomes necessary to modify the accounts, the Board of Directors must approve the modified accounts, before being passed on the auditors for the purpose of Audit. Normally a Committee of Directors is constituted for exercise of such powers and duties as relate to day to day management of business of the company so that the need for frequent meetings of the board for routine work is obviated and the day to day work of the company does not suffer for want of, or for the delay in obtaining the approval of Board. However, the approval of the Annual Accounts which are to be ultimately placed before the shareholders of the Company is not to be treated as a routine or part of the day to day work. Hence, the Board of Directors must consider the Accounts and approve them before the accounts are handed over the Statutory Auditors of the company.”
(ii) A contrary view was expressed in the February 1982 issue of ‘The Chartered Secretary’, journal of the Institute of Company Secretaries of India, that “Section 215 of the Act provides for Board’s approval to balance sheet and Profit and Loss Accounts. The section does not lay down the mode of obtaining Board’s approval. It is, therefore, permissible to constitute a committee of Directors or authorise one or more Directors to approve the Accounts with or without modification. There is no bar on obtaining Board’s approval to the Accounts by circulation. However, minutes of such a committee must be placed before the Board at the next meeting.”
4.The querist has sought the opinion of the Expert Advisory Committee whether the modified accounts can be approved by a committee of the Board of Directors.
Opinion April 12,1983
1.The Committee notes that Section 292(1) lists certain powers to be exercised on behalf of the Company by the Board of Directors at its meetings only; it also provides for the mode of delegation of such powers. The Committee of the view that the argument of the querist that matters not listed in the aforesaid section cannot be delegated, does not seem to be correct since there are many matters which cannot be delegated under other provisions of the Companies Act.
2. The Committee further notes that Sections 215(3) of the Companies Act, 1956 provides that the “balance sheet and the profit and loss account shall be approved by the Board of Directors before they are singed on behalf of the Board in accordance with the provisions of this section and before they are submitted to the auditors for their report thereon.” It may be seen that this section does not permit the approval of the accounts by a committee of the Board. Hence, the approval of accounts by the Board is essential even though this matter is not covered by Section 292(1). The Committee also notes that Section 215(3) does not prescribe any manner of adoption, i.e., whether in a meeting or by circulation.
3.The Committee considered the provision in the Articles of Association of the company regarding delegation of powers. It is of the view that the Articles of Association of the company can confer the right of delegation in respect of only the routine powers of the Board. The duty to approve the accounts is not a routine nature.
4.On the basis of the above, the Committee is of the opinion that the Board of Directors of the company cannot delegate the approval of modified accounts to a committee of its members. However, in the opinion of the Committee, the revised accounts can be approved by the Board circulation, provided, the other relevant provisions of the Act, e.g., Section 289, are complied with. ____________________________ |